European Retrovirus Investigations. During the Covid-19 pandemic and in conjunction with Europol, governmental authorities of Spain conducted coordinated inspections at a large number of medical waste management facilities, including Stericycle facilities, relating to the transportation, management and disposal of waste that may have been infected with the virus, and related matters. The inspections have resulted in proceedings, in which the Company is vigorously defending itself.
The Company has not accrued any amounts in respect of these investigations, as it cannot estimate the reasonably possible loss or any range of reasonably possible losses that the Company may incur. The Company is unable to make such an estimate because, based on what the Company knows now, in the Company’s judgment, the factual and legal issues presented in this matter are sufficiently unique that the Company is unable to identify other circumstances sufficiently comparable to provide guidance in making estimates.
NOTE 10 — PROPOSED PLAN OF MERGER
On June 3, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Waste Management, Inc., a Delaware corporation (“Parent”) and Stag Merger Sub Inc., a Delaware corporation and an indirect wholly-owned subsidiary of Parent (“Merger Sub”). The Merger Agreement provides that, among other things, at the Effective Time (as defined in the Merger Agreement) and subject to the terms and conditions set forth therein, Merger Sub will be merged with and into the Company (the “Merger”), with the Company surviving the Merger (the “Surviving Corporation”) as an indirect wholly-owned subsidiary of Parent.
At the Effective Time, each share of the Company's common stock, par value $0.01 (“Stericycle common stock”), issued and outstanding immediately prior to the Effective Time (other than (i) shares held directly by the Company (including shares held in treasury stock), Parent or Merger Sub or any subsidiary of the Company or Parent (collectively, “Excluded Shares”) and (ii) Dissenting Shares (as defined in the Merger Agreement)), will be converted into the right to receive $62.00 in cash, without interest and less applicable withholding taxes (the “Merger Consideration”).
The closing of the Merger (the “Closing”) is subject to various conditions, including (i) approval of the proposal to adopt the Merger Agreement by the vote of holders of a majority of the voting power represented by outstanding shares of Stericycle common stock (the “stockholder approval”); (ii) the consummation of the Merger not being restrained, enjoined or prohibited by any order (whether temporary, preliminary or permanent) of any governmental entity of competent jurisdiction and no applicable law having been enacted to prohibit or make illegal the consummation of the Merger, in each case, other than an immaterial order or law; (iii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the “HSR Act”), and all waivers, consents, clearances, approvals and authorizations under certain other applicable competition and foreign investment laws having been obtained (or the expiration or termination of any applicable waiting periods thereunder); and (iv) the accuracy of the representations and warranties of the Company, on the one hand, and of Parent and Merger Sub, on the other hand, contained in the Merger Agreement, subject in some instances to materiality or “material adverse effect” qualifiers, as of the date of the Merger Agreement and as of the Closing, and the performance or compliance in all material respects by the Company, on the one hand, and Parent and Merger Sub, on the other hand, of or with their respective covenants and agreements required to be performed or complied with by them under the Merger Agreement on or before the Closing date. The stockholder approval was obtained on August 14, 2024. The Closing conditions in the Merger Agreement with respect to receipt of approval under antitrust and foreign direct investment laws, including expiration of the waiting period under the HSR Act and receipt of antitrust or foreign investment approval in the U.K., Canada, Spain and Portugal, have been satisfied in accordance with the terms and conditions of the Merger Agreement. In addition, the obligation of Parent and Merger Sub to consummate the Merger is subject to the absence, since the date of the Merger Agreement, of a Company Material Adverse Effect (as defined in the Merger Agreement) that is continuing. The Closing is not subject to a financing condition. Under the terms of the Merger Agreement, consummation of the Merger will occur as soon as possible, but in any event no later than three business days after the satisfaction or waiver of all of the applicable conditions to the Closing. The board of directors of the Company (the “Board”) has unanimously approved the Merger and the Merger Agreement. Until the Closing, the Company will continue to operate as an independent public company.
The Company has incurred and expects to continue to incur certain significant costs relating to the Merger, such as legal, accounting, financial advisory, printing and other professional services fees, as well as other customary payments. During the three and nine months ended, September 30, 2024, in connection with the Merger, Stericycle incurred approximately $3.4 million and $11.6 million, respectively, of transaction-related expenses, reported in SG&A. In the event that the Merger is terminated, the Company may also be required under the Merger Agreement under certain circumstances to pay a termination fee to Parent of $175.0 million, or may be entitled to receive a termination fee of $262.5 million from Parent.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Safe Harbor Statement
This document may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act and as defined in the Private Securities Litigation Reform Act of 1995. When we use words such as “believes”, “expects”, “anticipates”, “estimates”, “may”, “plan”, “will”, “goal”, or similar expressions, we are making forward-looking statements. Forward-looking statements are prospective in nature and are not based on historical facts, but rather on current expectations and projections of our management about future events and are therefore subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. Factors that could cause such differences include, among others, the inability to consummate the Merger within the anticipated time period, or at all, due to any reason, the failure to satisfy all the conditions to the consummation of the Merger, the risk that the Merger Agreement may be terminated in circumstances requiring us to pay a termination fee, the effect of the announcement of the Merger on our ability to retain and hire key personnel and maintain relationships with our customers, suppliers and others with whom we do business, the effect of the announcement of the Merger on our operating results and business generally, the significant costs, fees and expenses related to the Merger, the risk that our stock price may decline significantly if the Merger is not consummated, decreases in the volume of regulated wastes or personal and confidential information collected from customers, disruptions resulting from deployment of systems, disruptions in our supply chain, disruptions in or attacks on data information technology systems, labor shortages, a recession or economic disruption in the U.S. and other countries, changing market conditions in the healthcare industry, competition and demand for services in the regulated waste and secure information destruction industries, SOP pricing volatility or pricing volatility in other commodities, changes in the volume of paper processed by our secure information destruction business and the revenue generated from the sale of SOP, inflationary cost pressure in labor, supply chain, energy, and other expenses, foreign exchange rate volatility in the jurisdictions in which we operate, changes in governmental regulation of the collection, transportation, treatment and disposal of regulated waste or the proper handling and protection of personal and confidential information, the level of government enforcement of regulations governing regulated waste collection and treatment or the proper handling and protection of personal and confidential information, the outcome of pending, future or settled litigation or investigations, self-insurance claims and settlements, including the nature, cost and outcome of any litigation and other legal proceedings related to the Merger, charges related to portfolio optimization or the failure of acquisitions or divestitures to achieve the desired results, the obligations to service substantial indebtedness and comply with the covenants and restrictions contained in our credit agreements and Senior Notes, elevated interest rates or a downgrade in our credit rating resulting in an increase in interest expense, political, economic, war, and other risks related to our foreign operations, pandemics and the resulting impact on the results of operations, long-term remote work arrangements which may adversely affect our business, closures of our facilities or the facilities of our customers and suppliers, weather and environmental changes related to climate change, requirements of customers and investors for net carbon zero emissions strategies, and the introduction of regulations for greenhouse gases, which could negatively affect our costs to operate, failure to maintain an effective system of internal control over financial reporting, as well as other factors described in our filings with the SEC, including our 2023 Form 10-K and subsequent Quarterly Reports on Form 10-Q. As a result, past financial performance should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate future results or trends. We disclaim any obligation to update or revise any forward-looking or other statements contained herein other than in accordance with legal and regulatory obligations.
Stericycle, Inc. is a U.S. based business-to-business services company and leading provider of compliance-based solutions that protect people and brands, promote health and well-being and safeguard the environment. Through our family of brands, Stericycle serves customers in North America and Europe with solutions to safely manage materials that could otherwise spread disease, contaminate the environment, or compromise one’s identity. To our customers, team members and the communities we serve, Stericycle is a company that protects what matters.
Key business highlights include:
•Received all antitrust and foreign investment approvals and clearances required to consummate the Merger contemplated by the Merger Agreement, including expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and receipt of antitrust or foreign investment approval in the U.K., Canada, Spain and Portugal. Stericycle previously announced that its stockholders voted to approve the adoption of the Merger Agreement on August 14, 2024, satisfying another condition to closing the Merger. Stericycle expects to consummate the Merger as promptly as practicable, subject to satisfaction of other customary closing conditions under the Merger Agreement.
•Our McCarran, Nevada, incinerator project remains on-track and is currently in the testing phase with operational waste processing to begin in 2025.
•In October 2024, entered into a definitive agreement to divest our operations in Spain and Portugal for cash consideration of $86.4 million.
Other Developments
We continue to experience revenue challenges among certain national account customers, including changes in frequency and type of service and site consolidations in North America. Further, hurricanes Helene and Milton resulted in devastation throughout the southeastern U.S. impacting a number of our customers and the communities they serve. While our facilities suffered minimal damage and became fully operational shortly after the storms, we are still assessing the full impact to our customers.
Proposed Plan of Merger
For additional information, see Part I, Item I. Financial Statements; Note 10 — Proposed Plan of Merger in the Condensed Consolidated Financial Statements. Team members spent significant time and attention in the second and third quarters of 2024 attending to Merger-related matters and expect to continue to devote significant time to such matters through Closing.
Key Business Priorities
In 2024, we pivoted to our next generation of key business priorities to drive margin expansion and deliver value:
•Commercial and Service Excellence – We will focus on driving profitable revenue growth by delivering a differentiated value proposition and a seamless customer experience as a trusted compliance partner.
•Operational Excellence – We plan to drive margin improvement, harnessing a streamlined and talented workforce, modern technologies, updated and new facilities, and a refreshed fleet.
•Digital Implementation – We will begin to leverage digital, data, and AI capabilities to further deliver commercial and service excellence and efficiencies across our network and shared services, using the foundation of the modern ERP.
•Strategic Capital Allocation – We continue to invest in our core businesses while targeting a lower debt leverage ratio.
Certain Key Priorities and Other Significant Matters
The following table identifies certain key priorities and other significant matters impacting our business and how they are classified in the Condensed Consolidated Statements of (Loss) Income:
In millions
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Pre-tax items:
Included in COR
Operational Optimization
$
(0.1)
$
—
$
1.9
$
—
Asset Impairments
—
—
—
3.4
Total included in COR
(0.1)
—
1.9
3.4
Included in SG&A
ERP and System Modernization
4.1
4.8
12.7
12.9
Intangible Amortization
27.6
27.9
83.1
84.2
Operational Optimization
(0.3)
—
3.1
—
Portfolio Optimization
1.3
0.8
3.1
1.4
Litigation, Settlements and Regulatory Compliance
15.9
5.3
39.0
22.4
Asset Impairments
—
3.1
—
3.1
WM Transaction-Related Charges
3.4
—
11.6
—
Total included in SG&A
52.0
41.9
152.6
124.0
Divestiture losses, net and impairments
10.5
4.2
10.5
63.4
Total included in Income from operations
$
62.4
$
46.1
$
165.0
$
190.8
ERP and System Modernization
For the periods presented of the ERP and System Modernization, we have recognized the following, reported in Other Costs:
In millions
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
North America
Operating expenditures
$
3.5
$
3.6
$
9.2
$
11.3
Capital expenditures
2.8
5.6
9.6
14.3
Total North America
$
6.3
$
9.2
$
18.8
$
25.6
International
Operating expenditures
$
0.6
$
1.2
$
3.5
$
1.6
Capital expenditures
1.0
—
2.6
—
Total International
$
1.6
$
1.2
$
6.1
$
1.6
Total operating expenditures
$
4.1
$
4.8
$
12.7
$
12.9
Total capital expenditures
3.8
5.6
12.2
14.3
Total ERP and System Modernization
$
7.9
$
10.4
$
24.9
$
27.2
Upon deployment of the ERP in our U.S. RWCS business in the third quarter of 2023, certain costs became incremental information technology ongoing costs for running the new system, including maintenance, licensing, and depreciation expenses. North America continues to invest in certain ERP enhancements. Our international ERP system modernization includes enhancements and upgrades associated with European based RWCS and SID operations. We will continue to incur the current level of costs to maintain the legacy suite of applications also used by our businesses during the system modernization.
Intangible Amortization
See table above of certain key priorities and other significant matters for intangible amortization expenses from acquisitions for the periods presented and how they are classified in the Condensed Consolidated Statements of(Loss) Income. The decrease in intangible amortization expense is a result of divestitures and certain intangible assets that have reached the end of their useful lives.
See table above of certain key priorities and other significant matters for operational optimization for the periods presented, and how they are classified in the Condensed Consolidated Statements of(Loss) Income.
In February 2024, the Company recognized Operational Optimization severance charges of $5.0 million related to a workforce reduction, in our North America and International segments, which is expected to provide annual savings of approximately $21.0 million to $24.0 million beginning in the first half of 2024. We had also reduced our overall workforce in our retained businesses through careful hiring and managing attrition which is expected to provide annual savings of approximately $11.0 million to $13.0 million in 2024.
In October of 2023, the Company recognized Operational Optimization charges of $4.1 million primarily related to severance associated with workforce reduction, split between North America and International segments, and closure of an International facility. These workforce reduction actions are expected to provide annual savings of approximately $8.0 million in 2024.
As we continue to consider each Operational Optimization activity, the amount, the timing and recognition of charges will be affected by the occurrence of commitments and triggering events as defined under U.S. GAAP, among other factors. For additional information, see Part I, Item I. Financial Statements; Note 4 — Restructuring, Divestitures, and Impairments in the Condensed Consolidated Financial Statements.
Portfolio Optimization
See table above of certain key priorities and other significant matters for portfolio optimization (including Divestiture losses, net and impairments) for the periods presented, and how they are classified in the Condensed Consolidated Statements of(Loss) Income. Consulting and professional fees are reported in Other Costs, while Divestiture losses, net and impairments are included in their respective segment.
Acquisition
We regularly evaluate the competitive environment and consider opportunistic acquisitions to strengthen our core businesses. We believe acquisitions, when appropriately valued and constructively integrated, are an efficient way to gain customers, scale treatment operations, and build customer density for transportation. We expect to focus on accretive tuck-in acquisitions. For additional information, see Part I, Item I. Financial Statements; Note 3— Acquisition in the Condensed Consolidated Financial Statements.
Divestitures
We evaluate our portfolio of services on an ongoing basis with a country-by-country and service line-by-service line approach to assess long-term potential and identify potential business candidates for divestiture. Resulting divestitures or pending transactions may cause us to record significant charges, including those related to goodwill, other intangible assets, long-lived assets, and cumulative translation adjustments.
The Company anticipates additional impacts for the Spain and Portugal transaction related to estimated transaction costs, foreign exchange volatility, and adjustments to working capital, prior to close and subsequently based upon the terms of the applicable agreement. Operating results for the businesses will be excluded from the financial statements subsequent to the close date of the applicable transaction.
As part of our long-term strategy for improving profitability and return on invested capital, and more recently as part of the portfolio optimization component of Business Transformation, we continue to evaluate the performance of our entire portfolio of assets and businesses. Divestitures resulting from this strategy may cause us to record significant charges, including those related to goodwill, other intangible assets, long-lived assets, and cumulative translation adjustments. In addition, divestitures we complete may not yield the targeted improvements in our business. Any charges that we are required to record or the failure to achieve the intended financial results associated with the portfolio rationalization strategy could have a material adverse effect on our business, financial condition or results of operations.
We will continue impairment testing annually or as otherwise required by applicable accounting standards. Our evaluation is based on the assumption that these assets or businesses will continue to be operated by us until they are disposed of by us. For additional information, see Part I, Item I. Financial Statements; Note 4 — Restructuring, Divestitures, and Impairments in the Condensed Consolidated Financial Statements.
Impairment
See table above of certain key priorities and other significant matters for impairments for the periods presented and how they are classified in the Condensed Consolidated Statements of (Loss) Income.
We perform our goodwill impairment testing annually or more frequently if events or changes in circumstances indicate goodwill might be impaired. Long-lived assets, such as property, plant, and equipment and amortizing intangible assets are reviewed whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The recent portfolio optimization (the approved plan to exit operations and subsequent definitive agreement to divest our Spain and Portugal operations) will be factored into the annual impairment analysis related to our Europe reporting unit. We will continue to work with our third-party valuation specialists to appropriately capture these factors in our annual goodwill impairment test during the fourth quarter or if recoverability tests are required for long-lived assets.
Impairment charges may be recognized in future periods to the extent changes in factors or circumstances occur, including deterioration in the macroeconomic environment or in the equity markets, including the market value of our common shares, deterioration in our performance or our future projections, or changes in our plans for one or more reporting units or specified long-lived assets, among other factors. For additional information, see Part I, Item I.Financial Statements;Note 4 — Restructuring, Divestitures, and Impairments in the Condensed Consolidated Financial Statements.
Litigation, Settlements and Regulatory Compliance
We operate in highly regulated industries and must address regulatory inquiries or respond to investigations from time to time. We have also been involved in a variety of civil litigation from time to time. Certain of these matters are detailed in Part I, Item I. Financial Statements; Note 9 — Commitments and Contingencies in the Condensed Consolidated Financial Statements. Our financial results may also include considerations of non-recurring matters including settlements, environmental remediation, and legal related consulting and professional fees.
See table above of certain key priorities and other significant matters for litigation, settlements and regulatory compliance charges. Among other things, the table reflects consulting and professional fees (including FCPA monitoring fees which commenced in 2023 and ended in the third quarter of 2024), certain contingent liability provisions and settlements, indirect tax provisions and credits impacting our business for the periods presented, primarily in Other Costs. See Part I, Item I. Financial Statements; Note 9 — Commitments and Contingencies in the Condensed Consolidated Financial Statements for additional details.
WM Transaction Related Charges
During the three and nine months ended September 30, 2024, in connection with the Merger, we incurred approximately $3.4 million and $11.6 million, respectively, of transaction-related expenses (legal, advisory, and other related fees), reported in SG&A. For additional information, see Part I, Item I. Financial Statements; Note 10 — Proposed Plan of Merger in the Condensed Consolidated Financial Statements.
Three and Nine Months Ended September 30, 2024 Compared to Three and Nine Months Ended September 30, 2023:
Revenues (including Segment Revenues)
We analyze revenues by revenue service category and reportable segment which were as follows:
Three Months Ended September 30,
In millions
Components of Change (%)(1)
2024
2023
Change ($)
Change (%)
Organic Growth(2)
Acquisition(3)
Divestitures(4)
Foreign Exchange(5)
Revenue by Service
Regulated Waste and Compliance Services
$
438.7
$
439.9
$
(1.2)
(0.3)
%
0.1
%
0.2
%
(0.9)
%
0.2
%
Secure Information Destruction Services
209.7
213.6
(3.9)
(1.8)
%
(2.0)
%
0.2
%
—
%
0.1
%
Total Revenues
$
648.4
$
653.5
$
(5.1)
(0.8)
%
(0.6)
%
0.2
%
(0.6)
%
0.2
%
North America
Regulated Waste and Compliance Services
$
369.2
$
368.0
$
1.2
0.3
%
0.1
%
0.3
%
—
%
(0.1)
%
Secure Information Destruction Services
185.2
189.1
(3.9)
(2.1)
%
(2.1)
%
0.2
%
—
%
(0.1)
%
Total North America Segment
$
554.4
$
557.1
$
(2.7)
(0.5)
%
(0.7)
%
0.3
%
—
%
(0.1)
%
International
Regulated Waste and Compliance Services
$
69.5
$
71.9
$
(2.4)
(3.3)
%
0.4
%
—
%
(5.4)
%
1.6
%
Secure Information Destruction Services
24.5
24.5
—
—
%
(1.5)
%
—
%
—
%
1.9
%
Total International Segment
$
94.0
$
96.4
$
(2.4)
(2.5)
%
(0.1)
%
—
%
(4.0)
%
1.7
%
Nine Months Ended September 30,
In millions
Components of Change (%)(1)
2024
2023
Change ($)
Change (%)
Organic Growth(2)
Acquisition(3)
Divestitures(4)
Foreign Exchange(5)
Revenue by Service
Regulated Waste and Compliance Services
$
1,329.0
$
1,335.9
$
(6.9)
(0.5)
%
1.3
%
0.2
%
(2.2)
%
0.2
%
Secure Information Destruction Services
645.9
671.4
(25.5)
(3.8)
%
(3.5)
%
0.1
%
(0.6)
%
0.1
%
Total Revenues
$
1,974.9
$
2,007.3
$
(32.4)
(1.6)
%
(0.3)
%
0.2
%
(1.6)
%
0.2
%
North America
Regulated Waste and Compliance Services
$
1,117.8
$
1,103.1
$
14.7
1.3
%
1.1
%
0.3
%
—
%
—
%
Secure Information Destruction Services
573.4
592.6
(19.2)
(3.2)
%
(3.3)
%
0.2
%
—
%
(0.1)
%
Total North America Segment
$
1,691.2
$
1,695.7
$
(4.5)
(0.3)
%
(0.4)
%
0.2
%
—
%
(0.1)
%
International
Regulated Waste and Compliance Services
$
211.2
$
232.8
$
(21.6)
(9.3)
%
2.1
%
—
%
(12.4)
%
1.3
%
Secure Information Destruction Services
72.5
78.8
(6.3)
(8.0)
%
(5.0)
%
—
%
(4.7)
%
1.6
%
Total International Segment
$
283.7
$
311.6
$
(27.9)
(9.0)
%
0.2
%
—
%
(10.4)
%
1.4
%
(1)Components of Change % in summation may not crossfoot to the total Change % due to rounding.
(2)Organic growth is change in Revenues which includes SOP pricing and volume and excludes impacts of divestitures, an acquisition, and foreign exchange rates.
(3)See Part I, Item I. Financial Statements; Note 3 — Acquisition in the Condensed Consolidated Financial Statements for more detail.
(4)See Part I, Item I. Financial Statements; Note 4 — Restructuring, Divestitures, and Impairments in the Condensed Consolidated Financial Statements for more detail.
(5)The comparisons at constant currency rates (foreign exchange) reflect comparative local currency balances at prior period’s foreign exchange rates. We calculated these percentages by taking current period reported Revenues less the respective prior period reported Revenues, divided by the prior period reported Revenues, all at the respective prior period’s foreign exchange rates. This measure provides information on the change in Revenues assuming that foreign currency exchange rates have not changed between the prior and the current period. Management believes this measure aids in the understanding of changes in Revenues without the impact of foreign currency.
Revenues for the third quarter of 2024 were $648.4 million, a decrease of $5.1 million, or 0.8%, compared to $653.5 million for the third quarter of 2023. The decrease was primarily due to divestitures of $3.9 million and lower organic revenues of $3.7 million. This decrease was partially offset by acquisition related revenues of $1.4 million and favorable foreign exchange rates of $1.1 million. Organic revenues in RWCS grew $0.7 million, while SID organic revenues were lower by $4.4 million. The decline in SID was mainly due to lower commodity-indexed revenues of $4.6 million, which was partially offset by higher SID service revenues of $0.2 million.
Revenues for the nine months ended September 30, 2024 were $1,974.9 million, a decrease of $32.4 million, or 1.6%, compared to $2,007.3 million for the nine months ended September 30, 2023. The decrease was primarily due to divestitures of $32.6 million and lower organic revenues of $6.9 million, which was partially offset by acquisition related revenues of $3.8 million and favorable foreign exchange rates of $3.3 million. Organic revenues in RWCS grew $16.5 million, mainly driven by pricing levers, while SID organic revenues were lower by $23.4 million. The decline in SID was mainly due to lower commodity-indexed revenues of $32.1 million, which was partially offset by higher SID service revenues of $8.7 million.
North America revenues decreased $2.7 million, or 0.5%, for the three months ended September 30, 2024, to $554.4 million from $557.1 million for the three months ended September 30, 2023. Organic revenues decreased $3.5 million, or 0.7%, mainly due to continued market challenges with our national customers. Additionally, RWCS organic revenues were impacted by reduced volumes from certain maritime customers in North America, which was partially offset by our pricing levers. SID organic revenues were impacted by lower commodity-indexed revenues, which were partially offset by higher SID service revenues.
North America revenues decreased $4.5 million, or 0.3%, for the nine months ended September 30, 2024, to $1,691.2 million from $1,695.7 million for the nine months ended September 30, 2023. Organic revenues decreased $7.3 million, or 0.4%, mainly as a result of lower SID commodity-indexed revenues and continued headwinds in SID service stops with our national customers, which were partially offset by higher SID service revenues. This decrease was partially offset by increased RWCS organic revenues, which was mainly driven by our pricing levers.
International revenues decreased $2.4 million, or 2.5%, for the three months ended September 30, 2024, to $94.0 million from $96.4 million for the three months ended September 30, 2023. This decrease was primarily due to the impact of divestitures of $3.9 million, or 4.0% and lower organic revenues of $0.2 million or 0.1%, partially offset by favorable foreign exchange rates of $1.7 million, or 1.7%. RWCS organic revenues were higher due to pricing levers and SID organic revenues were lower due to decreased service revenues.
International revenues decreased $27.9 million, or 9.0%, for the nine months ended September 30, 2024, to $283.7 million from $311.6 million for the nine months ended September 30, 2023. This decrease was primarily due to the impact of divestitures of $32.6 million, or 10.4%, partially offset by favorable foreign exchange rates of $4.3 million, or 1.4% and higher organic revenues of $0.4 million or 0.2%. RWCS organic revenues were higher due to pricing levers which was partially offset by lower SID organic revenues due to decreased commodity-indexed revenues coupled with lower service stops.
Gross profit:
$ In millions
Three Months Ended September 30,
2024
2023
Change
$
% Revenues
$
% Revenues
$
%
Gross profit
244.1
37.6
%
245.7
37.6
%
(1.6)
(0.7)
%
$ In millions
Nine Months Ended September 30,
2024
2023
Change
$
% Revenues
$
% Revenues
$
%
Gross profit
757.0
38.3
%
757.8
37.8
%
(0.8)
(0.1)
%
For the three and nine months ended September 30, 2024, compared to the 2023 comparable periods, the decreases in gross profit were partially due to lower SID commodity-indexed revenues and the corresponding margin flow through impact, primarily due to lower SOP rates. These were partially offset by cost savings and other margin flow through.
For the three and nine months ended September 30, 2024, compared to the 2023 comparable periods, we incurred higher SG&A associated with certain key priorities and other significant matters discussed above including (i) Litigation, Settlement and Regulatory Compliance, (ii) WM Transaction-Related Charges, and (iii) Operational Optimization matters, partially offset by the impacts of cost savings and lower incentive and stock-based compensation expense. Additionally in the nine months ended September 30, 2024, SG&A was impacted by higher bad debt expense due to a bankruptcy of a large hospital network in the second quarter of 2024 and a lower 2023 bad debt expense as a result of improved North America SID collections.
Divestiture losses, net and impairments:
$ In millions
Three Months Ended September 30,
2024
2023
Change
$
% Revenues
$
% Revenues
$
%
Divestiture losses, net and impairments
10.5
1.6
%
4.2
0.6
%
6.3
150.0
%
$ In millions
Nine Months Ended September 30,
2024
2023
Change
$
% Revenues
$
% Revenues
$
%
Divestiture losses, net and impairments
10.5
0.5
%
63.4
3.2
%
(52.9)
(83.4)
%
For additional information, see Part I, Item I. Financial Statements; Note 4 — Restructuring, Divestitures, and Impairments in the Condensed Consolidated Financial Statements.
Segment profitability and a reconciliation of total segment profitability to Income from operations was as follows:
In millions
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
Change 2024 versus 2023
2024
2023
Change 2024 versus 2023
$
% Segment Revenues
$
% Segment Revenues
$
%
$
% Segment Revenues
$
% Segment Revenues
$
%
Adjusted Income from Operations
North America
139.5
25.2
%
143.5
25.8
%
(4.0)
(2.8)
%
437.2
25.9
%
460.3
27.1
%
(23.1)
(5.0)
%
International
8.2
8.7
%
8.9
9.2
%
(0.7)
(7.9)
%
30.4
10.7
%
27.6
8.9
%
2.8
10.1
%
Other Costs
(76.3)
nm
(82.1)
nm
5.8
7.1
%
(224.2)
nm
(256.9)
nm
32.7
12.7
%
Total
71.4
11.0
%
70.3
10.8
%
1.1
1.6
%
243.4
12.3
%
231.0
11.5
%
12.4
5.4
%
Reconciliation to Income from operations
Adjusted Income from Operations
71.4
70.3
243.4
231.0
Adjusting Items Total (1)
(62.4)
(46.1)
(165.0)
(190.8)
Income from operations
$
9.0
$
24.2
$
78.4
$
40.2
nm - percentage or percentage change not meaningful for comparison
(1)See Part I, Item I. Financial Statements; Note 8 — Segment Reporting in the Condensed Consolidated Financial Statements for more detail.
Adjusted Income from Operations for North America decreased for the three and nine months ended September 30, 2024, compared to the 2023 comparable periods, primarily as the result of lower SID commodity-indexed revenues and the corresponding margin flow through impact. This decrease was partially offset by cost savings and other margin flow through. Additionally in the nine months ended September 30, 2024, higher bad debt expense was primarily due to the bankruptcy of a large hospital network in the second quarter of 2024 and a lower 2023 bad debt expense as a result of improved North America SID collections.
Adjusted Income from Operations for International decreased for the three months ended September 30, 2024, compared to the 2023 comparable period. This decrease was primarily due to lower SID commodity-indexed revenues and the corresponding margin flow through impact, which was partially offset by the impact of divestitures, favorable RWCS pricing levers, and foreign exchange rates.
Adjusted Income from Operations for International increased for the nine months ended September 30, 2024, compared to the 2023 comparable period. This increase was primarily due to the impact of divestitures, favorable RWCS pricing levers, and foreign exchange rates, which were partially offset by lower SID commodity-indexed revenues and the corresponding margin flow through impact.
Adjusted Loss from Operations for Other Costs decreased for the three and nine months ended September 30, 2024, compared to the 2023 comparable periods. These decreases were primarily driven by cost savings, including operational optimization initiatives, and lower incentive and stock-based compensation expense.
Interest expense, net increased for the three and nine months ended September 30, 2024, as compared to the 2023 comparable periods, primarily due to higher average debt balances and refinancing of the 2019 Senior Notes using the Credit Facility which converted the long-term debt from a fixed interest rate to a higher variable interest rate as of the redemption date.
Other income (expense), net:
$ In millions
Three Months Ended September 30,
2024
2023
Change
$
% Revenues
$
% Revenues
$
%
Other income (expense), net
—
—
%
$
0.1
—
%
(0.1)
(100.0)
%
$ In millions
Nine Months Ended September 30,
2024
2023
Change
$
% Revenues
$
% Revenues
$
%
Other income (expense), net
(0.1)
—
%
(0.3)
—
%
0.2
66.7
%
Other income (expense), net is primarily comprised of foreign exchange (gains) losses.
Income tax expense:
$ In millions
Three Months Ended September 30,
2024
2023
Change
$
Effective Rate
$
Effective Rate
$
%
Income tax expense
2.3
(20.2)
%
4.8
69.6
%
(2.5)
(52.1)
%
$ In millions
Nine Months Ended September 30,
2024
2023
Change
$
Effective Rate
$
Effective Rate
$
%
Income tax expense
13.6
71.6
%
19.1
(112.4)
%
(5.5)
(28.8)
%
For further information, see Part I, Item I. Financial Statements; Note 6 — Income Taxes in the Condensed Consolidated Financial Statements.
Liquidity and Capital Resources
The Company believes that it has sufficient liquidity to support its ongoing operations and to invest in future growth to create value for its shareholders. Operating cash flows and the Company’s $1.2 billion Credit Facility are the Company’s primary sources of liquidity and are expected to be used for, among other things, payment of interest and principal on the Company’s long-term debt obligations, and capital expenditures necessary to support growth and productivity improvements. As of September 30, 2024, we had $432.7 million of available capacity in the $1.2 billion Credit Facility.
The Credit Agreement contains, among other covenants, a financial covenant requiring maintenance of a maximum Credit Agreement Defined Debt Leverage Ratio of 4.00 to 1.00 which includes, among other provisions, $50.0 million of cash add-backs to EBITDA with respect to any four fiscal quarter period ending on or before December 31, 2023. As of September 30, 2024, the Company was in compliance with its financial covenants. The Credit Agreement Defined Debt Leverage Ratio was 3.48 to 1.00, which was below the allowed maximum ratio of 4.00 to 1.00 as set forth in the amended Credit Agreement. Expiration of the $50.0 million of cash add-backs to EBITDA contributed approximately 30 points of increase to the Credit Agreement Defined Debt Leverage Ratio as of September 30, 2024 compared to December 31, 2023.
On February 1, 2024, the Company issued a redemption notice to 2019 Senior Notes holders for redemption of all of the $600 million aggregate principal amount of the outstanding 2019 Senior Notes, and on March 14, 2024 completed the redemption with borrowings from the Credit Facility. The refinancing of the 2019 Senior Notes using the Credit Facility converted the long-term debt from fixed rate to variable rate as of the redemption date. For further details concerning these matters, see Part I, Item I. Financial Statements; Note 5 — Debt in the Condensed Consolidated Financial Statements.
Cash Flow Summary:
The following table shows cash flow information for the Company by activity:
In millions
Nine Months Ended September 30,
2024
2023
Net cash from operating activities
$
56.4
$
193.3
Net cash from investing activities
(120.6)
(15.5)
Net cash from financing activities
62.4
(205.2)
Effect of exchange rate changes on cash and cash equivalents
0.8
1.1
Net change in cash and cash equivalents
$
(1.0)
$
(26.3)
Operating Cash Flows: Net cash provided from operating activities decreased $136.9 million in the nine months ended September 30, 2024, to $56.4 million from $193.3 million in the nine months ended September 30, 2023. The decrease of $136.9 million was mainly due to an increase in accounts receivable, net of deferred revenues of $60.9 million due to billing and collection delays from the U.S. RWCS ERP launch in September 2023; higher payments of $19.5 million related to litigation, settlements, and regulatory compliance, WM transaction related charges, and operational optimization as described above; higher annual incentive plan payments of $17.1 million; higher income tax payments of $16.4 million; higher interest payments of $7.9 million; and lower cash from operating income and other net working capital of $15.1 million.
DSO as reported for September 30, 2024 was 84 days or 73 days, net of deferred revenues. DSO as reported for September 30, 2023 was 63 days or 55 days, net of deferred revenues. The September 30, 2024 DSO, net of deferred revenues, was higher as compared to the same period in 2023, mainly driven by the timing of U.S. RWCS customer billing and subsequent collections associated with the ERP implementation as we continue to enhance U.S. billing presentment and collections processes. RWCS cash collections from customers have improved beginning in the third quarter compared to periods since the U.S. RWCS ERP launched in September 2023.
Investing Cash Flows: Net cash from investing activities decreased $105.1 million in the nine months ended September 30, 2024, to an outflow of $120.6 million from $15.5 million in the nine months ended September 30, 2023, primarily driven by cash payments for an acquisition of $13.7 million in 2024, as compared to $84.6 million received from divestitures in 2023. Cash paid for capital expenditures increased by $6.1 million to $108.3 million in the nine months of 2024 from $102.2 million in the nine months ended September 30, 2023.
Financing Cash Flows: Net cash from financing activities increased $267.6 million in the nine months ended September 30, 2024, to an inflow of $62.4 million from an outflow of $205.2 million in the nine months ended September 30, 2023. Net borrowings on our Credit Facility and Term Loan were $679.6 million in the nine months ended September 30, 2024, compared to net payments of $108.3 million in the nine months ended September 30, 2023. The Company redeemed all of the $600 million aggregate principal amount of the outstanding 2019 Senior Notes on March 14, 2024 with Credit Facility borrowings.
As discussed in our 2023 Form 10-K, the preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amount of reported assets and liabilities and disclosure of contingent liabilities at the date of the Condensed Consolidated Financial Statements and revenues and expenses during the periods reported. There were no material changes from the information provided therein.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we are exposed to market risks, including changes in interest rates, certain commodity prices, including SOP, diesel fuel, utilities and foreign currency rates. We do not specifically hedge our exposure to these risks.
We are subject to market risks arising from changes in interest rates which relate primarily to our financing activities. We performed a sensitivity analysis to determine how market rate changes might affect the fair value of our market risk-sensitive debt instruments (variable rate debt), which in aggregate as of September 30, 2024 were 61.6% of total aggregate debt. Our potential additional interest expense over one year that would result from a hypothetical, instantaneous and unfavorable change of 100 basis points in the interest rate on all of our variable rate debt would be approximately $8.4 million on a pre-tax basis.
We are subject to market risks arising from changes in the prices for commodities such as SOP, diesel fuel, and utilities. For example, historically diesel fuel has been approximately five percent of our COR. As the market prices for these commodities increase or decrease, our revenues, operating costs and margins may also increase or decrease. Variability in commodity prices can also impact the margins of our business as certain components of our Revenues are structured as a pass through of costs, including fuel surcharges as changes in diesel costs may offset in Revenues through our indexed fuel surcharges at certain levels of pricing.
There were no other material changes from the information provided in our 2023 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are effective as of September 30, 2024, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Exchange Act.
Changes in Internal Control Over Financial Reporting
During the quarter ended September 30, 2024, there were no changes that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Further information pertaining to legal proceedings can be found in Part I, Item I. Financial Statements; Note 9 — Commitments and Contingencies in the Condensed Consolidated Financial Statements and is incorporated herein by reference.
Item 1A. Risk Factors
In addition to the other information included in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in the 2023 Form 10-K and subsequent Quarterly Reports on Form 10-Q and the factors identified under “Safe Harbor Statement” at the beginning of Part I, Item 2 of this Quarterly Report on Form 10-Q, which could materially affect our business, financial condition, cash flows, or results of operations. The risks described in the 2023 Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently considers immaterial also may materially adversely affect its business, financial condition, and/or operating results. There have been no material changes to the risk factors included in the 2023 Form 10-K, other than as described below.
RISKS RELATED TO THE PROPOSED MERGER
The proposed Merger is subject to the satisfaction of a number of closing conditions, some or all of which may not be satisfied or completed within the expected timeframe, if at all.
Completion of the Merger is subject to a number of customary closing conditions. We can provide no assurance that all closing conditions will otherwise be satisfied (or waived, if applicable), and, even if all closing conditions are satisfied (or waived, if applicable), we can provide no assurance as to the terms, conditions and timing of the completion of the Merger. Many of the conditions to completion of the Merger are not within our control, and we cannot predict when or if these conditions will be satisfied (or waived, if applicable). Any adverse consequence of the pending Merger could be exacerbated by any delays in completion of the Merger or termination of the Merger Agreement.
Each party’s obligation to consummate the Merger is also subject to the accuracy of the representations and warranties of the other party (subject in some instances to materiality or “material adverse effect” qualifiers) and compliance in all material respects with the covenants and agreements contained in the Merger Agreement as of the Closing, including, with respect to us, covenants to conduct our business in the ordinary course and to not engage in certain kinds of material transactions prior to the Closing. In addition, the Merger Agreement may be terminated under certain specified circumstances. As a result, we cannot assure you that the Merger will be completed, even though our stockholders approved the Merger, or that, if completed, it will be on the terms set forth in the Merger Agreement or within the expected time frame.
We may not complete the proposed Merger within the time frame we anticipate or at all, which could have an adverse effect on our business, financial results and/or operations.
The proposed Merger may not be completed within the expected timeframe, or at all, as a result of various factors and conditions, some of which may be beyond our control. If the Merger is not completed for any reason, our stockholders will not receive any payment for their shares of Stericycle common stock in connection with the Merger. Instead, we will remain a public company, our common stock will continue to be listed and traded on The Nasdaq Global Select Market and registered under the Exchange Act, and we will be required to continue to file periodic reports with the SEC. Moreover, our ongoing business may be materially adversely affected, and we would be subject to a number of risks, including the following:
•we may experience negative reactions from the financial markets, including negative impacts on our stock price, and it is uncertain when, if ever, the price of the shares would return to the prices at which the shares currently trade;
•we may experience negative publicity, which could have an adverse effect on our ongoing operations including, but not limited to, retaining and attracting employees, customers, partners, suppliers and others with whom we do business;
•we will still be required to pay certain significant costs relating to the Merger, such as legal, accounting, financial advisory, printing and other professional services fees, which may relate to activities that we would not have undertaken other than in connection with the Merger;
•we may be required to pay a termination fee to Parent of $175.0 million, as required under the Merger Agreement under certain circumstances;
•while the Merger Agreement is in effect, we are subject to restrictions on our business activities, including, among other things, restrictions on our ability to engage in certain kinds of material transactions, which could prevent us from pursuing strategic business opportunities, taking actions with respect to our business that we may consider advantageous and responding effectively and/or timely to competitive pressures and industry developments, and may as a result materially adversely affect our business, results of operations and financial condition;
•matters relating to the Merger require substantial commitments of time and resources by our management, which could result in the distraction of management from ongoing business operations and pursuing other opportunities that could have been beneficial to us;
•we may commit significant time and resources to defending against litigation related to the Merger; and
•we may encounter difficulties retaining our workforce due to the Merger.
If the Merger is not consummated, the risks described above may materialize, and they may have a material adverse effect on our business operations, financial results and stock price, particularly to the extent that the current market price of our common stock reflects an assumption that the Merger will be completed.
We will be subject to various uncertainties while the Merger is pending that may cause disruption and may make it more difficult to maintain relationships with customers and other third-party business partners.
Our efforts to complete the Merger could cause substantial disruptions in, and create uncertainty surrounding, our business, which may materially adversely affect our results of operation and our business. Uncertainty as to whether the Merger will be completed may affect our ability to recruit prospective employees or to retain and motivate existing employees. Employee retention may be particularly challenging while the Merger is pending because employees may experience uncertainty about their roles following the Merger. As mentioned above, a substantial amount of our management’s and employees’ attention is being directed toward the completion of the Merger and thus is being diverted from our day-to-day operations. Uncertainty as to our future could adversely affect our business and our relationship with customers and potential customers. For example, customers, suppliers and other third parties may defer decisions concerning working with us, or seek to change existing business relationships with us. Changes to or termination of existing business relationships could adversely affect our revenue, earnings and financial condition, as well as the market price of Stericycle common stock. The adverse effects of the pendency of the Merger could be exacerbated by any delays in completion of the Merger or termination of the Merger Agreement.
In certain instances, the Merger Agreement requires us to pay a termination fee to Parent, which could affect the decisions of a third party considering making an Acquisition Proposal.
Under the terms of the Merger Agreement, we may be required to pay Parent a termination fee of $175.0 million under specified conditions, including if we terminate the Merger Agreement to enter into a Superior Proposal. This payment could affect the structure, pricing and terms proposed by a third party seeking to acquire or merge with us and could discourage a third party from making an Acquisition Proposal, including a proposal that would be more favorable to our stockholders than the Merger.
We have incurred, and will continue to incur, direct and indirect costs as a result of the Merger.
We have incurred, and will continue to incur, significant costs and expenses, including regulatory costs, fees for professional services and other transaction costs in connection with the Merger, for which we will have received little or no benefit if the Merger is not completed. There are a number of factors beyond our control that could affect the total amount or the timing of these costs and expenses. Many of these fees and costs will be payable by us even if the Merger is not completed and may relate to activities that we would not have undertaken other than to complete the Merger.
Litigation challenging the Merger Agreement may prevent the Merger from being consummated within the expected timeframe or at all.
Lawsuits may be filed against us, our Board or other parties to the Merger Agreement, challenging our acquisition by Parent and making other claims in connection therewith. Such lawsuits may be brought by our purported stockholders and seek, among other things, to enjoin consummation of the Merger. One of the conditions to the consummation of the Merger is that the consummation of the Merger is not restrained, enjoined or prohibited by any order (whether temporary, preliminary or permanent) of any governmental entity of competent jurisdiction or prohibited or made illegal by any applicable law, in each case, other than an immaterial order or law. As such, if the plaintiffs in such lawsuits are successful in obtaining an injunction prohibiting the defendants from completing the Merger on the agreed upon terms, then such injunction may prevent the Merger from becoming effective, or from becoming effective within the expected timeframe.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered equity securities during the three months ended September 30, 2024.
Item 5. Other Information
During the three months ended September 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any non-Rule 10b5-1 trading arrangement (as defined in the SEC’s rules).
The following exhibits are filed or furnished as part of this report:
Exhibit Index
Exhibit Index
Description
2.1
Agreement and Plan of Merger, dated as of June 3, 2024, by and among the Stericycle, Inc., Waste Management, Inc. and Stag Merger Sub Inc. (incorporated by reference to Exhibit 2.1 to our current report on Form 8-K filed June 3, 2024)*+
The following information from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL: (i) Condensed Consolidated Statements of (Loss) Income; (ii) Condensed Consolidated Statements of Comprehensive Income (Loss); (iii) Condensed Consolidated Balance Sheets; (iv) Condensed Consolidated Statements of Cash Flows; (v) Condensed Consolidated Statements of Changes in Equity; (vi) Notes to Condensed Consolidated Financial Statements, and (vii) the information under Part II, Item 5, “Other Information”
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 1, 2024
STERICYCLE, INC.
(Registrant)
By: /s/ JANET H. ZELENKA
Janet H. Zelenka
Executive Vice President, Chief Financial Officer & Chief Information Officer
